Protecting the Rights of Shareholders in the Company's Reserve Funds (A Comparative Study)

Abstract

Reserve funds are sums that are deducted from the net profits achieved by the company, to be used for purposes specified by the law, the company’s articles of association or decisions issued by the general assembly. Given that these funds are undistributed profits to the shareholders from whom they were deducted, so they are exclusive rights to them. However, in the case of increasing the company’s capital by offering new shares, or in the event of a merger, which leads to the joining of new shareholders to the company who participate in the reserve funds that the old shareholders did not participate in in its formation, and this in itself leads to harm to the old shareholders. To avoid this, there are two means to protect the rights of the old shareholders in the reserve funds: the first is for the old shareholders to enjoy the preference right to subscribe to the shares of the capital increase, and the second is to impose the issue premium or the merger premium.